SHARE PURCHASE AGREEMENT

 

 

This Share Purchase Agreement (“Agreement”), dated as of the 15 ^th day of December 2005 is entered into by and among dj Orthopedics, LLC, a Delaware, USA, limited liability company (“Purchaser”), MBO Partenaires, a French société par actions simplifiée, having its registered offices at 75 bis, avenue Marceau, 75116 Paris, registered with the Registry of Commerce and Companies under number 443 024 237 RCS Paris, acting in its capacity as the management company of MBO Capital, a Fonds Commun de Placements à Risque , Alain Cassam-Chenaï, an individual residing at 98, rue de l’Abbé Groult, 75015 Paris (MBO Capital and Mr. Cassam-Chenaï sometimes hereinafter referred to collectively as the “MBO Stockholders”), Alain Avril, an individual residing at Chemin de Jacquemin, 64100 Bayonne, Charles Dubourg, an individual residing at 32, place du pavé, 18200 Meillant, Sophie Dubourg, an individual residing at 32, place du pavé, 18200 Meillant, and Edmond Flacks, an individual residing at 5, square des Sables, 78940 La-Queue-Lez-Yvelines (Messrs. Avril, Dubourg and Flacks and Mrs. Dubourg sometimes hereinafter referred to collectively as the “Management Stockholders”).  The MBO Stockholders and the Management Stockholders are sometimes hereinafter referred to collectively as the “Stockholders”.

 

RECITALS

 

1.             The Stockholders own all of the outstanding shares of capital stock of Newmed, a French société par actions simplifiée , having its registered offices at Paris (75008) — 37, rue des Mathurins and registered with the Registry of Commerce and Companies under number 448 205 906 RCS Paris (the “Company”).

 

2.             On the terms and subject to the conditions set forth in this Agreement, Purchaser desires to purchase from the Stockholders, and the Stockholders desire to sell to Purchaser, all of the outstanding capital stock of the Company (the “Shares”) and to enter into certain other agreements ancillary to such purchase and sale of Shares as provided for herein.

 

AGREEMENT

 

                                Now, therefore, the parties to this Agreement agree as follows:

 

Section 1

 

Purchase and Sale of Capital Stock and Debt

 

1.1           Purchase and Sale of Shares .  Subject to the terms and conditions hereof, on the Closing Date (as hereinafter defined) Purchaser shall purchase from each of the Stockholders, and each Stockholder shall sell and transfer to Purchaser, all such Stockholder’s right, title and interest, free and clear of any liens, encumbrances or charges, in and to the Shares owned by such Stockholder as shown opposite each such Stockholder’s name on Schedule 1.1 to this Agreement, such Shares constituting in the aggregate all of the issued and outstanding shares of

 

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capital stock of the Company.  Purchaser reserves the right to assign its right to receive title to the Shares to its subsidiary, dj Orthopedics France a French société par actions simplifiée, having its registered offices at rue Albert Deville, 08090 Tournes and registered with the Registry of Commerce and Companies under number 450 064 654 RCS Charleville Mezieres, and agrees to advise the Stockholders on or before the Closing (as hereinafter defined) if it will make such assignment.  Should Purchaser assign its rights under the Agreement to dj Orthopedics France SAS, the latter shall be bound by the terms of the Agreement, and Purchaser shall remain jointly and severally liable ( solidairement responsable ) with dj Orthopedics France SAS in respect of any and all obligations of dj Orthopedics France SAS hereunder.

 

1.2           Purchase and Sale of Debt .  Subject to the terms and conditions hereof, on the Closing Date Purchaser shall purchase from the Stockholders, and the Stockholders shall sell and transfer to Purchaser, all such Stockholder’s right, title and interest, free and clear of any liens, encumbrances or charges, in and to all of the debt due by the Company to the Stockholders at the date hereof (the “Debt”) as shown opposite each such Stockholder’s name on Schedule 1.2 .  Purchaser reserves the right to assign its right to receive title to the Debt to its subsidiary, dj Orthopedics France SAS, and agrees to advise the Stockholders on or before the Closing (as hereinafter defined) if it will make such assignment.  Should Purchaser assign its rights under the Agreement to dj Orthopedics France SAS, the latter shall be bound by the terms of the Agreement, and Purchaser shall remain jointly and severally liable ( solidairement responsable ) with dj Orthopedics France SAS in respect of any and all obligations of dj Orthopedics France SAS hereunder.

 

1.3           Purchase Price .  Subject to possible adjustment under Section 1.6 below, the aggregate purchase price for the Shares and the Debt shall consist of a payment at Closing of €11,140,000 (the “Base Price”) and an additional payment of up to €1 million if certain revenue thresholds are reached by the Company during the one-year period following the Closing, as described below in Section 1.5 (the “Earn Out Amount”).  The Base Price shall be paid in readily available funds at the Closing and allocated between the Shares and the Debt as follows:

 

(i)            an amount equal to €8,686,412 for the Shares;

 

(ii)           an amount equal to €450,000 for Alain Avril’s balance of sale credit;

 

(iii)          an amount equal to €50,000 for Edmond Flacks’ balance of sale credit;

 

(iv)          an amount equal to €147,500 for the current indebtedness of the Company to the Stockholders; and

 

(v)           an amount equal to €1,806,088 for the then outstanding convertible bonds of the Company.

 

Schedule 1.3 shows the allocation of the above amounts comprising the Base Price between the various Stockholders.

 

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1.4           Repayment of the Third Party Debt .  Purchaser shall cause the Company to repay to the lenders under the senior credit facility agreement ( Convention de Crédit ) entered into between Société Nanceienne Varin-Bernier, Crédit Industriel d’Alsace et Lorraine and Newmed on May 7, 2005, as amended by an Amendment N°1 of even date, the full amount outstanding thereunder (excluding breakage or other costs) in an amount of €1,860,000, it being provided that breakage or other costs, which are in a maximum amount of €1,000, shall be borne by the Company.

 

1.5           Earn Out Amount .  During the one-year measurement period of the Earn-Out, as described below, the Management Stockholders shall be in active day-to-day control of the Company’s operations, subject to the oversight and supervision of Purchaser and Purchaser Vice President, Europe.  The parties agree that the commercial policies of the Company during said measurement period will be generally consistent with those pursued by the Company prior to the Closing Date.  Purchaser and the Management Stockholders agree to consult with each other before implementing material changes to those commercial policies, particularly changes to prices or products offered to the market.  The Management Stockholders shall be entitled to receive all or a portion of the Earn Out Amount if the Revenue achieved by the Company and the Subsidiaries (as this word is defined in Section 2.2) plus the Revenue of Purchaser’s currently existing subsidiary in France (hereinafter referred to collectively as the “Net Consolidated Axmed Revenue”) during 2006 reflect growth of 10% or more over 2005.  Revenue means gross revenue deriving from bona fide sales of products to third parties (excluding any sales between any of the Company or the Subsidiaries) ( chiffre d’affaires ), less any discounts, other rebates, or recalls ( rabais, remises, ristournes, escomptes de réglement, et retours éventuels ), and excluding, for the Subsidiaries, sales made outside France (including French overseas territories — DOM/TOM-), Belgium, Luxembourg, Andorra, and Monaco.  Specifically, if the growth rate of the Net Consolidated Axmed Revenue during 2006 is less than 10%, the Management Stockholders shall receive none of the Earn Out Amount.  If the growth rate of the Net Consolidated Axmed Revenue during 2006 is 10%, the Management Stockholders shall receive 50% of the Earn Out Amount.  If such growth rate is 15% or more, the Management Stockholders shall receive the entire Earn Out Amount.  If such growth rate is between 10% and 15%, the Management Stockholders shall receive a prorata portion of the amount between 50% and 100% of the Earn Out Amount.  The Net Consolidated Axmed Revenue and the portion of the Earn Out Amount actually earned by the Management Stockholders shall be determined by Purchaser from the books and records of the Company, the Subsidiaries and Purchaser’s currently existing subsidiary in France and, to the extent earned, shall be paid to the Management Stockholders no later than 30 days after the first anniversary of this Agreement; provided, however, that the Management Stockholders shall be entitled to be paid 25% of the Earn Out Amount if the Net Consolidated Axmed Revenue during the first two complete calendar quarters following the Closing reflects a growth rate of 15% or more over the two comparable calendar quarters in the preceding year.  Payments of the Earn Out Amount to the Management Stockholders shall be made according to the instructions as appended in Schedule 1.5 .  As soon as practicable and no later than thirty (30) days after the Closing Date, Purchaser shall deliver to the Management Stockholders a notice setting forth the Net Consolidated Axmed Revenue for 2005.  The Net Consolidated Axmed Revenue for 2005 shall become final thirty (30) days after delivery of such notice to the Management Stockholders (or earlier if the Management

 

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Stockholders agree with such amount) unless the Management Stockholders notify Purchaser that they disagree with such amount.  As soon as practicable and no later than thirty (30) days after the first anniversary of the Closing Date, Purchaser shall deliver to the Management Stockholders a notice setting forth the Net Consolidated Axmed Revenue for 2006 and the Earn Out Amount.  The Net Consolidated Axmed Revenue for 2006 and the Earn Out Amount shall become final thirty (30) days after delivery of such notice to the Management Stockholders (or earlier if the Management Stockholders agree with such amount) unless the Management Stockholders notify Purchaser that they disagree with such amount.  Any dispute arising from this Section 1.5 in relation to the determination of the amount of the Net Consolidated Axmed Revenue for 2005, the Net Consolidated Axmed Revenue for 2006 or the Earn Out amount shall be settled pursuant to the provisions of Section 1.6, in fine , which shall apply mutatis mutandis .

 

1.6           Minimum Net Asset Requirement .  The Stockholders agree that the “Net Assets” of the Company and each of the Subsidiaries, as measured on December 31, 2005, must equal or exceed, in the aggregate, the total “Net Assets” of the Company and each of the Subsidiaries as measured on December 31, 2004.  For this purpose, “Net Assets” means (i) for the Company and Axmed, the amount referred to in the “DL” line of tax form 2051 as attached to tax return form 2065, (ii) for Axmed Iberica Productos Ortopedicos, S.L. Unipersonal, the amount referred to in line 220 of Modelo 200 “Fondos Proprios” , and (iii) for Fabrique Tunisienne Orthopédique (FTO), the “Total des capitaux propres avant affectation” line of its financial statements, all determined by application of generally accepted French accounting standards in effect on the date of this Agreement.  For purposes of calculating the “Net Assets” of the Company and each Subsidiary as at December 31, 2005, the valuation of the participation in the Subsidiaries as recorded on the Company’s balance sheet as at December 31, 2005 shall be deemed to be equal to the valuation of such participation as recorded in the Company’s balance sheet as at December 31, 2004.  If the sum of the Net Assets of the Company and the Subsidiaries on December 31, 2005 is less than the sum of the Net Assets of each such entity on December 31, 2004, the Stockholders shall pay to Purchaser, in readily available funds within ten (10) days of final agreement on the amount of said Net Assets on December 31, 2005, the difference between such Net Assets on December 31, 2004 and such amount on December 31, 2005.

 

As soon as practicable and no later than sixty (60) days after the Closing Date, Purchaser shall prepare and deliver to the Stockholders a balance sheet for the Company and each of the Subsidiaries as of December 31, 2005 (the “2005 Balance Sheets”) which shall reflect the Net Assets of those entities on that date.  The 2005 Balance Sheets shall be prepared using generally accepted French accounting standards in effect on the date of this Agreement.  The 2005 Balance Sheets shall become final thirty (30) days after delivery to the Stockholders (or earlier if the Stockholders agree with such balance sheets) unless the Stockholders give notice to Purchaser that they disagree with any such balance sheet.  Any such notice shall specify the nature and amount of the disagreement.  The parties will work in good faith to resolve any such disagreement, but if they cannot resolve the disagreement within thirty (30) days of delivery of the notice of disagreement, the parties will submit the disagreement for resolution to KPMG (Paris).  If KPMG (Paris) is unable or unwilling to act and the Stockholders and Purchaser cannot agree, within 10 days from the date upon which KPMG (Paris) has stated that it is

 

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unwilling or unable to act, on another independent internationally recognized accounting firm not associated with any party hereto, either party hereto shall be entitled to request, via a référé proceeding the designation of such a firm by the President of the commercial Court of Paris ( Tribunal de Commerce de Paris), each party having the opportunity to be heard.  The accounting firm shall act as an expert within the meaning of Article 1592 of the French civil code (and not as an arbitrator) in making any such determination, which shall be final and binding on the parties and shall not be subject to any recourse before a court or arbitration tribunal, except as necessary to enforce such determination.  One half of the fees of KPMG (Paris) (or the alternate accounting firm as the case may be) shall be borne by Purchaser, the remaining half being borne by the Stockholders, based on their respective shareholding in the Company immediately before the Closing Date.

 

Section 2

 

Representations and Warranties of the Stockholders

 

2.0           Qualifications to the Representations .  The Schedules attached to this Agreement identify specific items which are disclosed against the specifically identified representations and warranties contained in this Agreement.  There shall be no breach or deemed breach of any of the representations or warranties contained in this Agreement in respect of any of the matters disclosed in the Schedule against the particular representation and warranty. Notwithstanding the foregoing, information set forth in one specific section of a Schedule which is disclosed against a particular representation and warranty shall also be deemed to apply to each other applicable representation and warranty to which its relevance is apparent on its face.  Generally, the liability of the Stockholders pursuant to Section 7.2 shall be excluded only with respect to the information contained in the Schedules, provided that such information is fairly disclosed.  If any event(s) that occurred between the date of this Agreement and the Closing Date, makes one or more of the representations and warranties made or given in this Section 2 inaccurate in any material respect, the Stockholders will promptly (and in any event 1 business day before the Closing Date) inform Purchaser in writing of said event.  Where such event is likely to have a financial adverse impact on the Company or the Subsidiaries which is less than €15,000 (per event) or occurred in the ordinary course of business, Stockholders shall have the right to include in the relevant Schedule a description of such event, which shall accordingly be deemed to be disclosed pursuant to the provisions of this Section 2.0.

 

As of the date hereof, the Management Stockholders, jointly and severally ( solidairement ), and the other Stockholders, jointly but not severally ( non solidairement ), hereby represent and warrant to Purchaser as follows, it being provided that, subject to the provisions of the above paragraph in fine , the following representations and warranties shall also be deemed to be true as of the Closing Date as if made or given on such date :

 

2.1           Organization, No bankruptcy, and Qualification.   The Company is a corporation duly organized and validly existing under the laws of France.

 

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The Company has all requisite power and authority and all licenses and other governmental authorizations necessary to own, operate and lease its properties and carry on its business as now conducted and as proposed to be conducted.  The Company is duly qualified or duly licensed to transact business and, where applicable, is in good standing in each jurisdiction, within or outside France, that the nature of the business conducted by it or its ownership or leasing of any property makes such qualification necessary.  True and complete copies of the documents by which the Company was organized and pursuant to which it is governed (“Organizational Documents”) have been delivered to Purchaser.

 

The Company is not currently, nor has it been in the past, the subject of any proceedings with a view to the prevention or resolution of business difficulties (or any similar actions), or of a judgment of dissolution, and there does not exist any fact justifying such a procedure or judgment involving the Company. The Company is not undergoing a period of difficulties ( période suspecte ) or any procedure related thereto (including a procédure d’alerte ), as those terms are used in French bankruptcy law or in a situation likely to result in similar consequences under any applicable laws and there do not exist any facts justifying such a procedure or judgment against the Company.

 

2.2           Subsidiaries .  Schedule 2.2 hereto sets forth each direct or indirect subsidiary of the Company (hereinafter, “Subsidiary”, it being provided that for the purpose of this Agreement, Orbamed Dr. Gützlaf GmbH shall not be considered as a Subsidiary), the jurisdiction of its organization or incorporation, the number of shares and percentage of outstanding capital stock of such Subsidiary owned by the Company or any other Subsidiary and the identity of any other owner of any shares of capital stock of, or any other equity interest or security in, any such Subsidiary.  Other than the Subsidiaries and, until Closing Date, Orbamed Dr. Gützlaf GmbH, the Company and the Subsidiaries do not own, and never owned, directly or indirectly, any ownership interest or other security or investment in any corporation, partnership, limited liability company, joint venture, organization or other entity.  Each Subsidiary is a company duly organized and validly existing in its jurisdiction of organization and has all requisite power and authority and all licenses and governmental authorizations necessary to own, operate and lease its property and carry on its business as now conducted and as proposed to be conducted.  None of the Subsidiaries is currently, nor has any of them been in the past, the subject of any proceedings with a view to the prevention or resolution of business difficulties (or any similar actions), or of a judgment of dissolution, and there does not exist any fact justifying such a procedure or judgment involving any of the Subsidiaries. None of the Subsidiaries is undergoing a period of difficulties ( période suspecte ) or any procedure related thereto (including a procédure d’alerte ), as those terms are used in French bankruptcy law or in a situation likely to result in similar consequences under any applicable laws and there do not exist any facts justifying such a procedure or judgment against any of the Subsidiaries.  True and complete copies of the Organizational Documents of each Subsidiary have been delivered to Purchaser.  No resolution has been adopted by a Subsidiary’s competent corporate body, which has not yet been registered in the commercial register of such Subsidiary, where such registration is required under applicable law.  On the Closing Date and thereafter, subject to the provisions of Section 8.4, none of the Company and the Subsidiaries shall have any liability, whether known or

 

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unknown, as a result or in connection with the shareholding previously held in Orbamed Dr. Gützlaf GmbH.

 

2.3           Authorization and Enforceability .  Each Stockholder has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder.  All action on the part of each Stockholder and, if applicable, each Stockholder’s officers, directors and equity holders, necessary for the authorization, execution and delivery of this Agreement and any agreements required or contemplated hereunder and the performance of all obligations of the Stockholder hereunder and thereunder, including the transfer and sale of the Shares and, where relevant, the Debt, has or will have been taken before the Closing Date.  This Agreement has been duly executed and delivered by each Stockholder and constitutes the valid and legally binding obligation of such Stockholder, enforceable against the Stockholder in accordance with its terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium or other laws relating to or affecting the enforcement of creditors’ rights and remedies generally.  MBO Partenaires hereby further represents that it has, and will maintain, appropriate reserves so that it will be, at all times, in a position to pay any amounts payable to Purchaser under Section 1.6 and the Stockholders’ indemnification of Purchaser provided in Section 7.2 of this Agreement.

 

2.4           Capitalization .  The share capital of the Company amounts to €1,000,000, consisting of 100,000 shares with a par value of €10 each, of which 100,000 shares constitute the “Shares” for purposes of this Agreement.  The Shares constitute all of the equity interests of the Company.  The Shares are owned by the Stockholders in the respective amounts shown on Schedule 1.1 attached to this Agreement.  Except as shown on Schedule 1.1 and Schedule 2.2 hereto and as provided for in the Shareholders’ Agreement existing to date between the Stockholders and which will automatically and fully terminate on Closing Date, there are as of the Closing Date no shares of capital stock of the Company or any Subsidiary, or other equity interests or securities of any nature in the Company or any Subsidiary, issued, outstanding or reserved for issuance nor are there any preemptive rights, rights of first refusal, rights of first offer or any outstanding subscriptions, options, warrants, rights, convertible securities, or other agreements, arrangements or commitments relating to the issued or unissued capital stock or other equity interests or securities of the Company or any Subsidiary.  Except as shown on Schedule 2.4(i) , none of the Shares nor any outstanding share of capital stock of any Subsidiary is subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding, including any such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting or disposition of any of such shares.  Except as set forth in Schedule 2.4(ii) , there are no outstanding bonds, debentures, notes or other indebtedness of the Company or any Subsidiary convertible into, or exchangeable for securities having the right to vote on any matters on which stockholders of the Company or any Subsidiary may vote.

 

There are no outstanding contractual obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any capital stock or equity interests or securities of the Company, any Subsidiary or any other entity or person.

 

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2.5           Valid Issuance; Share Ownership .  All the Shares and all shares of capital stock of the Subsidiaries have been validly issued, are fully paid, have neither been directly or indirectly repaid or redeemed, and have been issued in compliance with applicable laws.  The Stockholders have good and marketable title to the Shares owned by them, free and clear of any lien, charge, encumbrance or claim by any other person or entity.  Each of the Company and any Subsidiary that owns shares of capital stock of an indirect Subsidiary of the Company has good and marketable title to the shares of capital stock owned in the Subsidiaries, free and clear of any lien, charge, encumbrance or claim by any other person or entity, with the exception of the pledge described in Schedule 2.5 and which will be released on the Closing Date.

 

No Stockholder is subject to any bankruptcy, reorganization or similar proceeding.  Upon delivery of the Shares to Purchaser pursuant to this Agreement against payment of the consideration therefor, Purchaser shall acquire good and valid title to such Shares.

 

2.6           Consents and Approvals .  No consent or approval by, or filings with, any governmental or administrative body or agency or other third party is required in connection with the execution, delivery or performance by the Stockholders of this Agreement or any agreement required or contemplated by the provisions hereof or for the consummation by the Stockholders of the transactions contemplated hereby or thereby.

 

2.7           No Conflicts .  Neither the execution and delivery of this Agreement or any agreements provided for hereunder, nor the consummation of the transactions contemplated hereby or thereby, will (a) violate any provision of the Organizational Documents of the Company, any Stockholder or any Subsidiary; (b) violate, breach, conflict with, or constitute a default (or constitute an event which, with the giving of notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under, any contract, agreement, lease, license or document to which the Company, any Stockholder or any Subsidiary is a party or by which any of their respective assets or properties is bound; (c) violate any order, writ, injunction, decree, law, statute, rule or regulation of any governmental authority applicable to any Stockholder, the Company or any Subsidiary or their respective businesses or properties; or (d) give rise to the declaration or imposition of any lien or other encumbrance upon any of the Shares, any share of a Subsidiary or any property of, or used by, the Company or any Subsidiary.

 

2.8           Reference Accounts .  The Stockholders have delivered to Purchaser the audited corporate income statements, balance sheets, and notes thereto, of the Company and the Subsidiaries for the two fiscal years ended December 31, 2003 (or as the case may be June 30, 2004) and December 31, 2004.  The corporate income statements, balance sheets, and notes thereto, of the Company and the Subsidiaries for the year ended December 31, 2004 are attached to this Agreement as Schedule 2.8 and are hereinafter referred to as the “Reference Accounts.

 

The Reference Accounts (i) have been prepared in conformity with generally accepted French accounting standards (the “Accounting Standards”) consistently applied for prior periods, and (ii) fairly present the financial condition and results of operations of the Company and the Subsidiaries as of the dates and for the periods indicated therein, except concerning the notes to

 

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the accounts which do not show the amount of the retirement commitments ( indemnités de départ à la retraite ).  The books of account, financial data, and other records, including corporate records, of the Company and the Subsidiaries, required to be held pursuant to applicable laws, are held by the Company and the Subsidiaries, have been maintained in the ordinary course of business of the Company and the Subsidiaries, and there are no material misstatements, mistakes or omissions therein, and there have been no transactions involving the Company or the Subsidiaries that properly should have been reflected in the Reference Accounts in accordance with the Accounting Standards that have not been reflected therein.  Except concerning the amount of the retirement commitments, the Reference Accounts accurately reflects all liabilities, obligations and commitments of any nature (whether absolute, accrued, contingent or otherwise and whether matured or unmatured) of the Company or any Subsidiary, except (a) liabilities, obligations or commitments incurred since December 31, 2004 in the ordinary course of business and consistent with past practice and (b) other liabilities or obligations not required to be shown on a balance sheet prepared in accordance the Accounting Standards.

 

                2.9           Accounts Receivable .  Any accounts receivable arising between December 31, 2004 and the Closing Date (collectively, the “Accounts Receivable”) represent bona fide sales made or services performed on or prior to such date in the ordinary course of business of the Company and the Subsidiaries and consistent with past practices.  There is no contest, claim or right of set-off contained in any oral or written agreement with any account debtor relating to the amount or validity of any Account Receivable, and the Accounts Receivable, net of reserves, are and will be collectible in the ordinary course of business of the Company and the Subsidiaries.  The reserves for uncollectible Accounts Receivable reflected in the Reference Accounts and updated to the Closing Date have been established in the ordinary course of business, in accordance with the Accounting Standards and consistent with past practices.

 

                2.10         Inventory .  All inventory of the Company and the Subsidiaries existing on December 31, 2004 is valued in accordance with the Accounting Standards and consistent with past practices.  All inventory of the Company and the Subsidiaries existing on the date hereof, net of reserves for obsolescence, is useable and salable in the ordinary course of business of the Company and the Subsidiaries. The reserve for obsolescence has been established in the ordinary course of business, in accordance with the Accounting Standards and consistent with past practices.

 

                2.11         Fixed Assets .  All fixtures, furniture, machinery, equipment and other fixed assets owned or leased by the Company or any Subsidiary (the “Fixed Assets”) are in good operating condition and repair, normal wear and tear excepted, and are adequate for the uses to which they are being put.  None of the Fixed Assets is in need of maintenance or repairs, except for ordinary, routine maintenance and repairs.  The Fixed Assets are validly owned or leased and constitute all of the fixed assets used by the Company and the Subsidiaries in the operation of its and their businesses.

 

2.12         Absence of Certain Changes or Events .  Since the date of the Reference Accounts and except as set forth on Schedule 2.12 hereto, the Company and the Subsidiaries have

 

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conducted their respective businesses in the ordinary course consistent with past practices and none of the following has occurred:

 

(a)           event, fact or circumstances that, individually or in the aggregate, could reasonably be expected to result in a material adverse effect on the operations, conditions or prospects of the Company and its Subsidiaries, taken as a whole;

 

(b)           acquisition of or agreement to acquire by merging with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, limited liability company, association or other business entity, in a transaction or series of related transactions;

 

(c)           issuance by the Company or any Subsidiary of, or commitment by it to issue, any common stock or other equity securities or obligations or any securities convertible into or exchangeable or exercisable for equity securities;

 

(d)           indebtedness for borrowed money incurred, assumed or guaranteed by the Company or any Subsidiary or any commitment to incur any such indebtedness entered into by the Company or any Subsidiary, or any loans made or agreed to be made by the Company or any Subsidiary other than ordinary course of business indebtedness incurred to (i) lease or acquire ordinary course of business fixed assets consistent with past practice, or (ii) finance the working capital needs of the Subsidiaries in the ordinary course of business;

 

(e)           increase in the compensation of officers or employees (including any such increase pursuant to the grant of or increase to any bonus, pension, profit sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any officer or employee or any severance or termination pay, except for increases to non officer employees in the ordinary course of business, consistent with past practice or as required by any existing agreement;

 

(f)            incurrence or imposition of a lien, security interest or encumbrance on any of the assets or other properties of the Company or any Subsidiary;

 

(g)           damage, destruction or loss (whether or not covered by insurance) in an aggregate amount exceeding €10,000;

 

(h)           delay or failure to pay or perform any obligation (including accounts payable) of the Company or any Subsidiary when due;

 

(i)            settlement or other resolution of any litigation, or termination, amendment, modification or waiver of, or any breach, violation or default by any party under, any contract or agreement of the Company or any Subsidiary, or entrance into a material contract, commitment or agreement;

 

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(j)            forgiveness, waiver or agreement to extend repayment of any indebtedness or other material obligation owed by or to the Company or any Subsidiary;

 

(k)           disposition or lapse of any rights to use any of the intellectual property or intangible assets of the Company or any Subsidiary;

 

(l)            contract, agreement or transaction with any affiliate of the Company or any Subsidiary, any officer, director, stockholder or employee of the Company or any Subsidiary or any family member of any such person other than in the ordinary course of business or as disclosed in this Agreement;

 

(m)          declaration or payment of any dividend or other distribution or payment (whether in cash, property or equity interests) to the Stockholders or otherwise with respect to the capital stock of the Company, or any redemption, purchase or acquisition of any of the securities of the Company or any Subsidiary, with the exception of the payment of interest pursuant to the terms and conditions of the convertible bonds issued on May 7, 2003 in a total amount, as of January 2, 2006, of €255,123, it being provided that this amount was provided under the responsibility of the Stockholders, and not verified by Purchaser, and that the Stockholders hereby undertake to provide Purchaser with any appropriate explanation or evidencing document confirming this amount as soon as possible and no later than December 31, 2005;

 

(n)           payment on any indebtedness to any Stockholder or any person or entity affiliated with any Stockholder, with the exception of the interest owed relating to the stockholders’ debts in a total amount, as of January 2, 2006, of € 75,733 and the reimbursement, by way of set-off, of Alain Avril and Edmond Flacks stockholders debts, in a total amount, as of January 2, 2006, of €114,500, it being provided that these amounts were provided under the responsibility of the Stockholders, and not verified by Purchaser, and that the Stockholders hereby undertake to provide Purchaser with any appropriate explanation or evidencing document confirming these amounts as soon as possible and no later than December 31, 2005;

 

(o)           material change in the tax liability of the Company and its Subsidiaries;

 

(p)           capital expenditures or commitments for additions to any property of the Company or its Subsidiaries constituting capital assets in an aggregate amount exceeding  €10,000 and not previously contained in a capital budget provided to Purchaser;

 

(q)           change in the accounting methods or practices followed by or with respect to the Company and its Subsidiaries or any material write-down or write-up of the value of any inventory of the Company or any Subsidiary or write-off of all or a material portion of any account receivable or note receivable of the Company or any Subsidiary;

 

(r)            changes made or pending in the amount or nature of the reimbursements available to customers for the products of the Company or its Subsidiaries; or

 

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(s)           negotiation, discussion or contract or agreement to take or agree to take any of the actions described in subsections (a) through (r) above.

 

2.13         Insurance .  Schedule 2.13 contains a true and complete list of all policies of liability, theft, life, fire, product liability, worker’s compensation, health and other forms of insurance for the Company, the Subsidiaries and their respective operations, specifying the insurer, amount of coverage, type of insurance, policy number, deductible or retention amount, premium, policy term and any pending claims thereunder.  The policies listed on such schedule are in full force and effect and the insurance available thereunder has not been exhausted.  Said insurance is sufficient in amount as of the date of the Closing, subject to reasonable deductibles, to allow the Company to replace any of the material properties of the Company or the Subsidiaries that may be damaged or destroyed.  This insurance insures the Company and the Subsidiaries and their assets and other properties against such casualties and contingencies and is carried in such amounts as is customary for companies similarly situated, which insurance is deemed by the Company to be sufficient.  Except as described on Schedule 2.13 , and since December 31, 2004, neither the Company nor any Subsidiary has given any notice or filed any claim with any of the insurers under any of these insurance policies.

 

2.14         Occupational Safety and Health Matters - Environmental Matters.   Each of the Company and the Subsidiaries have complied and continue to comply with all material legislation and regulation in force in the country where  they each operate concerning environment, health, safety or public health protection (the “Environmental Requirements”).  Each of the Company and the Subsidiaries has, in particular, filed all notifications or declarations and obtained all required permits and authorizations necessary to conduct its business as currently carried on and operations under applicable Environmental Requirements, and complied with all material regulations (including the fire or other reports for Axmed Iberica Productos Ortopedicos attached in Schedule 2.14 ) relating to such notifications, declarations, permits and authorizations. None of the Company or the Subsidiaries operates any waste storage facility, quarry or installation regulated under applicable Environmental Requirements.  There are no facts, conditions, situations or set of circumstances that could reasonably be expected to result in, or be the basis for, any liabilities on any of the Company or the Subsidiaries, arising under or relating to the Environmental Requirements.

 

No petroleum, petroleum hydrocarbon products, hazardous substances or wastes of any kind have been disposed of or otherwise released on, to or from any properties now or in the past owned or leased by any of the Company or the Subsidiaries (or any predecessor in interest).  Such properties do not contain asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls (PCB’s), leaking and/or non complying underground storage tanks or any other chemical material or substance prohibited by any governmental authority.  The representation in this paragraph is made subject to the best knowledge of the Stockholders in relation to properties that were acquired or leased by the Company or a particular Subsidiary before the Stockholders had control (directly or indirectly) over the Company or the Subsidiary concerned.

 

The Company and the Subsidiaries have at all times in the past sold, transferred, transported or arranged for the transportation, treated for elimination or arranged for the

 

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treatment of elimination of hazardous substances or wastes in compliance with the Environmental Requirements.

 

For clarification purposes, Purchaser acknowledges that there shall be no responsibility of the Stockholders for any remediation works that may be implemented by the Company or the Subsidiaries after the Closing Date and